Summary
- Peloton is making the right decisions to get a cheaper bike and pivot into new areas for TAM expansion.
- Looking at management's history, Peloton can outmaneuver new competition.
- The brand does have real value, even if this is not Apple.
- I see 15% upside from today's prices.
Thesis
Peloton (PTON) is re-defining fitness and is capturing the moment. Because it is a combination of hardware and software, Peloton has been under fire for commanding multiples unseen in the hardware and fitness world (NLS) etc. I believe PTON is in the early stages of building a brand that can capture spend across fitness and within its customer base.
Source: Website
While one must believe lofty LTV metrics to make the math work on current valuation, I believe the market is underestimating the ability of the founding team to think beyond spinning and a bike. I believe there is an opportunity to eat market share from players like Equinox which charge $200+ month (with Peloton charging $40/month for its hardware-linked subscription).
Expanding the TAM
Peloton management has performed well under the intense scrutiny in recent months. The launch of a cheaper bike, of a bike that can pivot to move into other types of fitness, and the hints from management about eating share from Planet Fitness (PLNT) are all pointing in the right direction. Peloton Tread and Bike+ are steps in the right direction.
At the same time, I understand reservations on moving downstream on the content side. One must believe that Peloton is able to use its market cap and its customer base to develop authentic, unique content to capture share from an increasingly competitive market. Health, wellness, and fitness are all merging in ways that look dangerous to Peloton, but may in fact just be TAMs combining into one. I suspect some TAM loss as the overlaps become real, but I also anticipate that the overall TAM for Peloton grows as it continues to innovate with new products, prove out the value prop above $40/mo on the content side, and build a community that is willing to stick with the brand.
The fact is nobody really ever gets TAM right, but with the move of Apple into fitness and health and other startups like Mirror, it looks like a validated market that is big enough. It will now come down to execution.
